It seems as if reason completely disappeared over the weekend as the crypto markets shot through the roof. Just 25% away from the psychological barrier of $10k now, it is important to ask the question: what’s next?
We’re going to look at three major markets today. First, we have the equity market. It was performing down last week, and many believed this to be part of the reason why Bitcoin was doing so well. As a non correlated asymmetric bet, it has become the asset to invest in when you are losing confidence in the current system. However, now that equities have performed better this week, how will this affect the cryptocurrency market?
Next, we have Bitcoin. There are several reasons why it has done so well in the last month (hitting 10-month highs), but nothing that is strong enough to explain the price doubling in about a month. For this reason, it seems more likely we will see a pullback. The price of Bitcoin is about 50% below its all-time high, whereas Ethereum is about 80% below its all-time high. This makes it feel likely that a correction back to some sort of a correlation will occur.
The altcoin market has a far more interesting dynamic at play. Binance has suspended withdrawals and deposits following the hack that cost them $40 million in Bitcoin. As a result, users have not been able to get their funds into what is the largest cryptocurrency trading exchange (by daily volume). This has kept prices down, and now that Binance has reopened deposits around mid-day on May 15th, we should expect to see some of the smart money moving into the altcoin space as well.
Direction of the Markets
If we are now in the bull market territory, how long will it be sustained? Binance has reopened today after executing a system update post hack, and I would expect to see money flood from BTC into other coins, especially the mid-tier ones that aren’t yet available on Coinbase.
The interplay of these three markets will inform the next few weeks of trading, as a balance will need to be struck. The equity market has been on a 10 year bull run and is due for a crash, and that could be part of why the Bitcoin pump was so quick to attract traders. There is a certain amount of FOMO here, but there are also retail and institutional investors who are looking for the next place they can get returns.
What is the Play?
The trade recommendation I would make is to sell Bitcoin into Ether. The gap between ETH and BTC is on its way to an all-time high, and that makes for a great arbitrage opportunity. Even with recent price increases, ETH is sitting way below the price implied by BTC’s pump. And that discounts all the big changes and progress that have occurred within the Ethereum community since the last bull market.
Either ETH will go up, or BTC will go down. The gas in this pump seems to be disappearing (for the time being) and for those who want to lock in some of their BTC gains, it seems like a great time to sell out and then buy the dip in a few weeks.
And don’t forget that if ETH does go up as it seems likely to do, you can always flip back into Bitcoin using the gains you just accrued. If bitcoin is down, the profits you made on ether will go a long way.